(Bloomberg) -- Maruti Suzuki India Ltd., country’s largest carmaker, sees weak demand weighing on sales of its smaller passenger vehicles, after its quarterly profits missed estimates.
The company’s heft in the local market will expand when sales for entry level vehicles gather pace, Chairman R C Bhargava told Bloomberg Television on Wednesday. “Our market share will certainly grow as soon as the lower end of the market, the cars below 1 million rupees, start growing,” he said. “We hope that by 2031-2032 we will certainly be back to 50%.”
The carmaker — known for sparking the affordable small-car revolution in India in the 1980s — currently has a local market share of about 40%. It posted a 17% fall in net income to 30.7 billion rupees ($365 million) for the September quarter, according to a filing Tuesday. That missed Bloomberg’s average analyst estimate of 37.1 billion rupees profit.
“The cause of concern is that growth is taking place only in certain segments,” Bhargava said in a media call Tuesday, explaining that sales of its entry-level cars were not growing.
Revenue for the quarter inched up 0.4% to 372 billion rupees, in line with brokerage estimates. Total costs rose 1.4% to 335.8 billion rupees, with raw material costs up 9% from last year. It also accounted for a larger deferred tax of 10.15 billion rupees versus 667 million rupees last year.
Maruti’s shares gained as much as 3.2% Wednesday, paring some of the losses from a day earlier. The stock slipped Tuesday after the earnings were announced during market hours.
The tepid earnings posted by the sector leader is part of the broader downturn in consumer spending. Sales of household goods, food and beverages, and personal care items have fallen amid high inflation and slowing growth in many pockets of the economy.
Maruti sold 541,550 vehicles in the quarter, down 2% on year, Tatsuo Yoshida, a Bloomberg Intelligence analyst, wrote in an Oct. 8 report. Its domestic sales slumped 7%, as growth in utility models like Brezza and Grand Vitara was offset by sagging demand for its smaller cars.
Dour Outlook
A dour outlook on the auto sector was also reflected partially in the muted response from retail investors for the Hyundai Motor India Ltd. initial public offering, the country’s largest ever. The Hyundai India shares debuted at a discount to the issue price.
In September, local passenger vehicle sales across industry dropped 19% from a year ago, and dealerships have a record 80 to 85 days of unsold stock worth 790 billion rupees, according to data from Federation of Automobile Dealers Associations.
Urban market for the firm is “slightly under pressure” even as rural market grew 8%, Partho Banerjee, Maruti’s head of sales said in the post-earnings call.
Carmakers in general are hopeful of consumers flocking to showrooms in the month-long festival period that ends with Diwali this week, as it is an auspicious stretch for buying assets.
“Bookings have been good,” Bhargava said, adding that the firm has delivered about 297,000 vehicles since mid-September. This will reduce its inventory to an average of 30 days by month end, he said.
Maruti expects its domestic sales to grow 14% this month, compared with a year ago, Bhargava said.
EV Catch Up
Maruti, which has lagged peers in launching environmentally friendly cars, plans to launch one electric vehicle model every year until 2031, Rahul Bharti, chief investor relations officer at the New-Delhi based firm had said in July.
The first one would be displayed at the Bharat Mobility Global Expo in January 2025 and the second one is “close behind,” Bharti said then.
Despite the recent decline in EV sales for all manufacturers, Bhargava said Maruti remains on track with its EV-related plans.
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